Why do I need a Tax Home?
You actually don’t need a tax home to travel.
You can take 13-week assignments, stay close to your home or travel away, not duplicate expenses, take vacations when you want, have all the flexibility (and more) of a ‘tax home traveler’- but you just have all your dollars taxed.
Or you can have a tax home. And that is how we get our pay divided into taxable income and also that fun non-taxed money.
How does this tax home thing work?
Okay, let’s pretend you had a daughter.
She was in college.
And had to pay for an apartment full time. Her school offered her a 30 day trip to Spain to study flamenco dancing.
But now she has to go to Spain and pay for an apartment room there also. Two rents!
So now she is:
1. Traveling away from her home #1 (where rent continues and her landlord cares zero about her dancing ambitions)
2. And she has to pay for home #2 while she lives her dream.
Man, dreams are expensive sometimes.
So you, the parent, decide to help her out.
You go ahead and give her the money to pay for home #2 in Spain because she is still paying rent in home #1 and you know she can’t afford both.
Or Scenario Two:
Let’s say your daughter was instead a free spirit.
She didn’t have a home anywhere, she was sleeping in Aunt Karen’s spare room last semester, and had a nice savings going on.
Well, this time you say - “Have fun sweetheart”- but let her pay her own rent.
Tax Homes work a bit like that.
But our “parent” is Uncle Sam and he will give us tax-free benefits based on if we have a real “tax home”.
And part of that means we are paying two significant rents (or a mortgage works).
If we do- he may give us a tax break to help us out.
It’s sort of like when people own a business and go on business trips. They get to save their receipts for tax deductions. We just don’t have to keep many of our receipts and we get the money upfront and not just at tax time.
So. Do you have a Tax Home?
Here are the basic 3 questions you can ask yourself to get started:
1. Do you have a place you pay a significant amount of rent/money towards each month? Is it fair market value (aka if you looked on Craigslist and saw what a stranger was paying for a room in your neighborhood would it be similar?) Are you keeping receipts to prove you are paying rent in case of an audit?
2. Are you actually traveling away from that home where you NEED another place to sleep? If you are only driving a communicable distance from your tax home then you automatically will be disqualified from tax-free stipends. In our story, you are not going to pay for a room down the street from Aunt Karen’s house, there has to be a real need here. And only needing to go 50 miles away is a big old myth.
3. Are you going home sometimes? We are not supposed to travel away and never come back or that is considered abandoning our tax home. On average, traveler’s should go back 30 days a year. (You can work when you go home but you do not have to). Also, keep all your paper ties to that home address. Don’t change your driver’s license. Keep your voter’s card and car registration and W2 addresses to that home. Think about how you would behave if you were genuinely on a 1-month business trip- you wouldn’t change anything official to a new address. It’s meant to just be temporary. So act that way!
"What if I get audited and they find out I did not have a real tax home?"
If you get audited, the IRS can go back and check us out from 7 years in the past. Keep those records!
If they audit you and come to find out you took tax-free reimbursements without a true tax home, they will then charge you the taxes on that money and most likely with some heavy penalties and late fees.
Companies and Travelers: Do not use this as your tax or legal advice.
This is a starting point. A chance to think deeper about tax homes and then get your own real tax advice from an expert.
Where you can go if you want legal tax advice:
Let them know I sent you - they give you a free 15-minute call and take good care of you.
There is also an amazing FAQ page on that website with lots of details on it for situations that might be true for you.
Laura & the Nomadicare Team xo
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